2016 (3) TMI 41 - AT - Income Tax

Reopening of assessment - additions solely on the basis of such retracted statements - disallowance of sub-commission paid to M/s. Airwings Travel and Cargo Pvt. Ltd. and Airtrac Agents (India) Pvt. Ltd - Held that - Even the AO was of the view that there was no direct incriminating evidence found against the assessee during the search action. We further find that even the Ld. CIT (A) in the impugned order has discussed that Airtrac had derived commission and incentives from other Air Lines also. The ld. CIT(A) has given a categorical finding that the AO had not brought any material on record in support of his conclusions that either these incomes relate to the same business in respect of which Assessee paid commission to Airtrac or to the effect that Assessee had diverted these incomes to Airtrac. The basis for coming to such conclusion by the AO does not find mention in the assessment order. Moreover, the above stated two companies have been regularly filing their returns of income with Income Tax Department. The income returned was duly accepted in various assessment proceedings for different years as detailed in the chart. Under such circumstances, adding the same income at the hands of assessee would amount to double taxation on the same income. Considering the above submissions and evidences on file and in the absence of any incriminating evidence against the assessee, the additions solely on the basis of retracted statements, which have duly been explained by the respective persons that the same were obtained under duress and further that the same were not correct and the correct position being explained with sufficient corroborative evidences on the file, in our view, the additions solely on the basis of such retracted statements without any corroborative evidence are not sustainable in the eyes of law especially when the assessee has proved with sufficient evidence on the file that various sub agents were offering business to the assessee for which the assessee was paying the commission to them including the concerns about which the AO has doubted the transactions. The another interesting fact is that assessment of the assessee for the assessment year 1996-97 which was originally completed were reopened under Section 148 on the basis of the information gathered during the search and seizure proceedings and the statements recorded as explained above under Section 132(4). During the reopened assessment proceedings, the AO accepted the explanation offered by the assessee regarding the retraction and the factual position with regard to the functioning of M/s Airtrac and M/s Airwings. The AO had completed the assessment accepting the assessee s stand vide assessment order dated 30th March, 2004. Under such circumstances, no justification has been offered for deviating from the earlier stand on the same set of facts and circumstances during the present block assessment. In view of our discussion made above, we do not find any justification on the part of lower authorities in making the impugned additions and the same are accordingly set aside. - Decided in favour of assessee

Issues Involved:
1. Applicability of Chapter XIV-B provisions.
2. Adherence to the principles of Natural Justice.
3. Disallowance of sub-commission paid to M/s. Airwings Travel and Cargo Pvt. Ltd. and Airtrac Agents (India) Pvt. Ltd.
4. Taxation of sub-commission amounts already offered for taxation in earlier years by the respective recipients.
5. Allowance of expenses incurred by the recipients of sub-commission.
6. Deviation from past assessment practices without recording reasons.
7. Exclusion of income earned by M/s Airtrac Pvt. Ltd. from the block assessment.

Detailed Analysis:

1. Applicability of Chapter XIV-B Provisions:
The assessee contended that the provisions of Chapter XIV-B were not applicable as the transactions were recorded in regular books of account. The Tribunal found that no incriminating material was discovered during the search, and the sub-agent companies were regularly assessed to income tax. Thus, the application of Chapter XIV-B was not justified.

2. Adherence to the Principles of Natural Justice:
The assessee argued that the principles of Natural Justice were violated as the AO relied on retracted statements without allowing cross-examination. The Tribunal observed that the retracted statements were not corroborated by any incriminating evidence found during the search. Hence, the assessment based on these statements was deemed invalid.

3. Disallowance of Sub-Commission:
The AO disallowed the sub-commission payments to Airwings and Airtrac, claiming they were paper companies. The Tribunal noted that both companies were regularly assessed to tax and had sufficient infrastructure to render services. The disallowance was not supported by any direct evidence of wrongdoing, making the AO's conclusion unsustainable.

4. Taxation of Sub-Commission Amounts:
The assessee argued that the sub-commission amounts were already taxed in the hands of the recipients in earlier years. The Tribunal agreed, noting that taxing the same amounts again in the block assessment would result in double taxation, which is not permissible.

5. Allowance of Expenses:
The assessee contended that if the income of Airwings and Airtrac was to be taxed in its hands, then the expenses incurred by these companies should also be allowed as deductions. The Tribunal found merit in this argument, stating that only the net income should be considered for taxation if at all.

6. Deviation from Past Assessment Practices:
The assessee argued that the AO deviated from past assessment practices without recording reasons. The Tribunal found that in the reassessment proceedings for the assessment year 1996-97, the AO had accepted the assessee's explanation regarding the functioning of Airwings and Airtrac. No new facts justified a deviation in the block assessment, making the AO's stance inconsistent and unjustified.

7. Exclusion of Income Earned by M/s Airtrac Pvt. Ltd.:
The Revenue contended that the CIT(A) erred in excluding the income earned by Airtrac from the block assessment. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not provided any material evidence to prove that the income was diverted by the assessee to Airtrac.

Conclusion:
The Tribunal allowed the appeal of the assessee and dismissed that of the Revenue. The Tribunal found that the additions made by the AO were based on retracted statements without corroborative evidence, and the principles of Natural Justice were violated. The Tribunal also noted that taxing the same income in the hands of both the assessee and the sub-agent companies would result in double taxation, which is impermissible. The Tribunal set aside the impugned additions and upheld the CIT(A)'s decision to exclude the income earned by Airtrac from the block assessment.

← Previous Next →